Grant Cameron | 4 March 2019
An essential management initiative to increase profits in a challenging environment
In 2018, the Australian Automotive Industry recorded its lowest profitability levels. Weaker new car volumes, declining gross profit and increasing costs all contributed towards this result.
It is clear from the data, that we need to find new ways to sell and service customers more efficiently. One area in your control are your expenses.
While you can’t save yourself to a profit, we recommend that now is a good time to review all costs and take control back over the management of your expenses.
- Total overhead expenses absorb between 80% to 100% of a dealership's gross profit
- Dealerships achieving a 2% net profit return on sales must increase sales by $50,000 to recover an increase in expenses of just $1,000
- Employee related costs represent approximately 45% of all Gross Profit generated
- An 'Expense Reduction Campaign' may represent a significant opportunity to increase its net profit.
Owners and General Managers should adopt a pro-active approach to Expense Control as an essential and positive method of increasing dealership profits.
The time to act is now...
Your Expense Control Checklist is below
Expense Control - Dealer Principal's Role
Expense Control is not an event, but a continuous process; with best results being achieved by a team approach; involving all senior management.
This approach needs to be led by the Dealer Principal.
This message does not replace the fact dependent managers should and must be responsible for their own selling gross.
Expense Control - Why it is a Viable Option to Increase Profitability
Gross Profit 14% 7,200,000
Expenses (90% of Gross) (6,480,000)
Net Profit $ 720,000
Net Profit to Sales Percentage 1.2%
To increase its % Net Profit Return on Sales to 2% this dealership could:
· Increase Sales by $40 million
Not a real option
· Increase Gross Profit by $480,000
Very difficult in a competitive market
· Reduce expenses by 7.4%
A real possibility!
Overhead expenses absorb between 80%-100% of a dealership’s gross profits and accordingly represent a ‘fertile’ target for Dealer Principals to focus on and take positive action aimed at achieving increased profitability.
Remember – Department Managers must be responsible and accountable for their own selling gross.
Dealership Expense Control - What You Can Do
A Checklist for Dealers who are serious about controlling expenses
Adopt the Right Culture and Systems
- Make expense control an ‘enduring culture’ in your dealership - vicious and infrequent cost cutting campaigns can lead to high staff turnover
- Develop reporting systems that accurately record expenses by franchise, department and responsibility.
- Offset deposit funds against floorplan
- Obtain interest on credit balances in bank accounts
- Purge your liquidity traps - set asset management benchmarks
- Check your current interest rates
- Manage debtors
- discourage small accounts
- encourage credit cards
- Reconcile floorplan accounts - stock swaps
- Review demonstrators - do you need that many?
- Eliminate any delay in submitting finance contracts?
People - 60% of all expenses
- Create and monitor productivity benchmarks:
- Sales per salesperson
- Productive technicians to non-productive staff
- Gross per technician
- Parts sales per employee
- Parts sales per dollar of salary
- Review pay plans - are they designed to:
- Increase productivity
- Reward loyalty and referral business
- Control expenses
- Commission costs:
- Who pays for warranty and finance ‘chargeback’ costs?
- Control and approve all overtime
- Ensure office layout is efficient, quiet and tidy - creates better productivity.
Fringe Benefits Tax
- Be aware of the flow on effect to:
- Payroll tax
- Worker's compensation
- Demonstrator vehicles – consider
- Type and value of vehicle
- Rotate fleet to get benefit of high kilometres
- Obtain reimbursement from employees.
Policy and Warranty
- Close all departmental policy accounts
- Have one master account – approved by the Dealer Principal
- Who has responsibility to approve?
- Maximum limit set before referral to Dealer Principal?
- Commission adjusted?
Land Tax and Rates
- Are rateable values realistic?
- Have you objected?
- Have you obtained the rebate for Apprentices and Trainees?
- Correct FBT value included?
Company Vehicles and Delivery Expense
- Control petrol costs
- Book all costs to a stock number.
Advertising or Marketing
- What is your strategy?
- Watch level of sponsorships
- Encourage referrals by staff and pay bonus
- Drive to performance
- Spend relevant % of past gross earned
- Make sure results are monitored
- Ask what your staff can do to reduce routine clerical work
- Prepare in advance for meetings - set agenda
- If operating in a Trust, does entity really need full audit?
- Well managed companies audit exemptions relevant?
- Write to your bank and ask for a review of the charges.
- Obtain quotes
- Level of excess on claims.
- Have you enquired of the authorities how you can save costs? e.g. solar panels
- Audit of past bills (including telephone).
- Obtain details of all creditors and summary of cheques paid to supplies for month
- Can you benefit from consolidating purchases?
- Have you checked prices for major suppliers?
- Can technology be used to reduce costs?
The above ‘checklist’ is issued as a guide only. It is not intended as an exhaustive list of available initiatives.
If you would like to discuss your specific dealership’s expense profile please contact your Motor Industry Services Partner.
The Expense Control Process
Our Golden Rules
To assist dealers establish a pro-active and continuous expense control process, we provide the following guidelines:
- Don't try to do it all yourself - involve your Management Team - Hold Expense Awareness Meetings.
- Expense Management and Control is not an event - it is a continuing process.
- Don't put it off - better to do it in good times than tough times.
- Develop the right attitude - investigate variances, don't try to defend your position.
- Close ‘Miscellaneous’ or ‘General’ expense accounts.
- Don't ‘sack the yardie’ - make the hard
- Don't run your dealership by reference to ‘averages’ - seek out the best performers and practices.
- Measure all expenses as a percentage of Gross and convert variances to dollar ($) amounts.
People Make the Difference
To promote increased dealership efficiency and productivity, Dealers must ensure their employment policies are aimed at ‘Training and Retaining’ quality employees.
We recommend Dealers set performance benchmarks and commission structures for managers, salesmen, technicians, service advisers etc with the overall aim of maximising productivity from your teams.
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